Hostess brands closing for good

New York (CNN Money)

Friday, November 16, 2012 - 8:58am

Hostess Brands -- the maker of such iconic baked goods as Twinkies, Devil Dogs and Wonder Bread -- announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.

The closing will result in Hostess' nearly 18,500 workers losing their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide, as well as 570 outlet stores. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union represents around 5,000 Hostess employees.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," said CEO Gregory Rayburn in a statement.

Hostess will move to sell its assets to the highest bidder. That could mean new life for some of its most popular products, which could be scooped up at auction and attached to products from other companies.

A letter that Hostess sent to its network of stores that carry its product said it expects "there will be great interest in our brands." But it said it could not give a time frame for when the sales would take place and its products would be available again.

But even if those brands are bought and restarted, the Hostess workers will not get their jobs back.

"The industry has overcapacity. We're overcapacity. Our rivals are overcapacity," said Rayburn in an interview on CNBC. Asked if the shutdown decision could be reversed if the Bakers' union agreed to immediately return to work, he responded, "Too late."

While approval of the bankruptcy court is needed before the company can start selling its assets in liquidation, the company said production at all of its bakeries has ceased effective Friday, and that stores will no longer receive products from Hostess Brands. But products that are already in stores can be sold, and the outlet stores will remain open for several days to sell the products they already have.

Hostess had annual sales of about $2.5 billion. The company said it had been making 500 million Twinkies and 127 million loaves of Wonder Bread annually before Friday's shutdown.

Its bread brands, including Wonder Bread, Nature's Pride and Butternut, make the company the No. 2 bread baker in the country, according to Symphony/IRI Group. Bimbo Bakeries, maker of the Arnold and Stroehmann brands, is the No. 1 bread baker.

The company had given a 5 p.m. ET Thursday deadline for the bakers to return to work or face a shutdown of the company. The unions at Hostess could not be reached immediately for comment on the decision.

Hostess filed for bankruptcy in January, its second trip to bankruptcy court since 2004. It previously emerged from restructuring in 2009 after a four-and-a-half year process.

The company is now controlled by a group of investment firms, including hedge funds Silver Point Capital and Monarch Alternative Capital.

In September, one of its major unions, the International Brotherhood of Teamsters, voted narrowly to accept a new contract with reduced wages and benefits. The Bakers' union rejected the deal, however, prompting Hostess management to secure permission from a bankruptcy court to force a new concession contract on workers.

The Teamsters union, which represents 7,500 Hostess workers, has been sharply critical of the smaller Bakers' decision to strike, saying it was forcing the company to the cusp of liquidation. The Teamsters said Thursday that the Bakers' union should hold a secret ballot on the company's offer, rather than the voice votes that were held in union halls around the country that authorized the decision to strike.

"It is difficult for Teamster members to believe that is what the [Bakers' union] Hostess members ultimately wanted to accomplish when they went out on strike," said the Teamsters' statement.

The Bakers' union has made several statements earlier in the week saying management is to blame for the condition of the company, not the strike.

The new contract cut salaries across the company by 8% in the first year of the five-year agreement. Salaries were then scheduled to bump up 3% in the next three years and 1% in the final year.

Hostess also reduced its pension obligations and its contribution to the employees' health care plan. In exchange, the company offered concessions, including a 25% equity stake for workers and the inclusion of two union representatives on an eight-member board of directors.

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